Yesterday, Credit Suisse published its 170+ page investigative report into Archegos, the family office hedge fund that cost the bank over $5bn in losses. CS hired law firm, Paul Weiss, to conduct the investigation.

In all, the report reads as a dangerous failure on behalf of CS to only follow “the letter of the law” and not its spirit, in this case, the law being compliance. In highly complex systems with multiple levels of oversight as well as conflicting priorities, it is easy for actors in the system to become lackadaisical in their efforts.

Below, I’ve highlighted a few excerpts from the report that are telling:

• “Likewise, $7.1 billion—or 74%—of the gross portfolio value was now driven by Archegos’s Prime Financing swap book, margined at just 5.9% on average compared to the 15% margin rate for its shrinking Prime Brokerage book.”
• “In December 2020, Archegos reported to CRM [internal risk management as CS] that its top five long positions represented 175% of its NAV; moreover, Archegos held two positions that represented between 5 and 10 days’ DTV”
• “On the call, Archegos informed its brokers that it had $120 billion in gross exposure and just $9-$10 billion in remaining equity.”
• “CRM advocated for a temporary exception to the scenario appetite in CSSEL by arguing that a precipitous increase in margins to remediate the limit breach might lead Archegos to move its business to its other prime brokers.”
• “the business failed to prioritize and fund the technological investment necessary to bring dynamic margining capability”
• “various Risk Committees only had access to data that were four to six weeks old”